Welcome back. In this lesson, we'll walk through a short example that shows how you would take information in an actuarial report, and enter it into the financial statements. So we're going to look in how you validate and record changes in the obligation and changes in the fair value of the plan assets. Let's start with the assumptions. So here's our discount rate, our expected return, and salary increases. We'll put that in the disclosure. Because the rate has decreased, the discount rate has decreased, the obligation should increase, creating an actuarial loss, but this could be offset by the effects of other changes in other assumptions, such as the change in the expected versus actual rate of return. We also would expect lower interest costs though in year 20X3 because that ending weight will be used to calculate interest cost next year. The long-term expected rate of return is not changed, so it's unlikely there was a significant change in the asset mix. Let's look at activity for the year. Here's the service cost of $100. This will all be coming from the actuary. The interest cost of $94, an expected return on plan assets, actuarial gain loss, plan amendment occurred halfway through the year of $240. It was an average remaining service lifetime of 12 years. So you would amortize that over 12 years, which would be 20 per year but since it happened midway through the year, we would expect amortization of 10. There's our actual return on plan assets. You can see that that's less than the expected return on plan assets. So we're going to expect a loss there, the benefits paid, and the employer contributions. Now, a lot of this stuff you can as an auditor, recalculate or verify from the employer's books of records as well. So let's prepare the change in the obligation. We're going to add the service cost, the interest cost, we'll subtract that actuarial loss, which in this case is a gain. We'll add the amendment in which increases the obligation, subtract the benefits paid. The ending balance should agree with the actuary's calculation. For the change in the assets, we'll take the beginning balance of the plan assets, we'll add the actual return on plan assets, remember not the expected return that doesn't go here. We'll add any contributions from the employer, we'll subtract out the benefits paid, notice benefit paid factors into both the obligation and the assets. Because, when I pay benefits from plan assets, it reduces both the obligation and the assets. So the same number will figure into both roll forwards. Then the ending funded status is a liability of $352 million. Now, the beginning funded status was a liability of $100 million. What's that mean? That means we need to account for an increase in liabilities of $252 million. That's going to be split actually between three different numbers. One will be the net periodic benefit cost, one will be other comprehensive income, and the third is contributions to the plans, because remember, contributions to the plan do reduce the obligation. So let's start with other comprehensive income. Now we have to recognize the amendments and any actuarial gains and losses that do not affect earnings. There was an actuarial gain on the obligations. So we show that there is an OCI actuarial gain of $22. There was an amendment. So we show that as an OCI in loss of $240, because it increased the obligation. What's the third one? That's a difference between the estimated return and the actual rate of return. Since the actual rate of return was less than the estimated rate of return, we have an actuarial loss on the assets of $43. So we've got a pension liability, we've accounted so far for $261. Net periodic benefit cost. We're going to take our service cost, the interest cost, the unwinding of the discount. We'll take the amortization of the prior service class. Now it came in halfway through the year. This is a reclassifying or a recycling entry. So this is entry number two and three just for that portion of the prior service cost that we're amortizing. It was half a year over a 12-year period, so we're going to amortize 10. That 10 goes into net periodic benefit cost and the other side of that entry, is OCI prior service cost, which reduces the net OCI for the year. That is your reclassifying entry. Then there's the pension liability, which increases for $26, which is the net on there and there's our expected return on assets of course. So far we've accounted for $261 + $26 = $287 worth of changes in the pension liability, that's $35 too much. It only changed by $252. What's the missing entry? Well, the missing entry is the contribution from the employer, which reduces the liability. It's the liability of the employer to the plan. So now we've accounted for the entire change, in the liability during the period. So what do we have? The statement of financial position at the end of the period, we're going to have the following amounts. We'll have that pension liability of $352, we'll have and accumulated other comprehensive income, the prior service cost when we close the other comprehensive income into AOCI. That will be net $230 because we've already reclassified or recycled 10 of it into income. We also have a net amount in AOCI of gains and losses. This is assuming that we had a zero balance to begin with of course, of $21 and that will be net of $43 amount that was a debit and a $22 amount that was a credit. We end up with a debit of $21. See if you can derive that amount for the gains and losses. So let's look at what we have now. Let's look first at the statement of comprehensive income. So here in the following amounts, we're going to recognize in comprehensive income. Remember comprehensive income is both net income and other comprehensive income. So in that periodic benefit cost, we'll have a total of $36. That was $100 of service cost, $94 of interest cost, $10 of amortization or prior service cost, and then you back out and net it against the expected return on plan assets of $168, total of $36. Another comprehensive income, we have that prior service cost, which is, net it to $230. Remember, the initial entry was $240, the initiating entry, and then we reclassified $10 of that as we amortized the prior service of cost into income, so the net amount of other comprehensive income, this period from prior service cost is $230, the net amount of other comprehensive income from gains and losses is $21. That again is the net of the actuarial gains and losses on the obligation and the actuarial gains and losses on the assets which is the difference between actual and expected return on plan assets, and the total in OCI is $251. It's a little complicated, if you do understand it and take it step by step, and start out with the amounts to go into other comprehensive income, proceed into that periodic benefit costs, don't forget to pick up any contributions for the importer. You should be able to reconcile the change and the net benefit obligation for the year. That's a good auditing tool to make sure you've got it correct, but it's also a nice exercise to show that you actually understand what's happened, and that everything has been correctly entered into the books of account. Thank you.